Kate Jones

It's a David versus Goliath scenario. Small independent pharmacies up against the might of discount chemist chains.

Will it be a battle to the death? Or will there be enough market space for both to share?

Customers come to their local pharmacist because they are trusted and have a good knowledge of medicine.

There are 5250 community pharmacies in Australia and 12 per cent of those are completely independent, according to research firm IBISWorld.

Frank Sirianni: smaller chemists need to re-assess their business model.

But these independents are expected to gradually be "forced out of the industry", IBISWorld researcher Arna Richardson says in her January 2014 report Pharmacies in Australia.

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Richardson points to an increasingly competitive industry due to the introduction of low-cost warehouse-style pharmacies coupled with proposed changes to the Pharmaceutical Benefits Scheme by the federal government, which could affect pharmacies' revenue.

Australia's pharmacy industry is worth $12.2 billion, with annual growth of 1.6 per cent in the five years to 2014. But Richardson predicts growth will slow to 1.2 per cent in the next five years.

Aggressive price discounting and the one-stop-shop style of stores such as Chemist Warehouse has presented a real threat to the traditional neighbourhood pharmacies.

Discount pharmacies, including Chemist Warehouse, Discount Drug Stores and United Discount Chemists, currently account for 25 per cent of the market, Richardson's report shows.

Chemist Warehouse has stores across Australia and, impressively, has doubled sales in five years to record an estimated revenue of $2.3 billion in 2013-14, according to the report.

The Pharmacy Guild's New South Wales president and independent pharmacy owner-operator Paul Sinclair says the rapid rise of discount pharmacies has forced independents to change their business models by cutting prices and emphasising their personalised service.

"They've had to differentiate themselves by providing exceptional service," he says.

"It comes back to the notion that our businesses are based on our relationship with clientele. Customers come to their local pharmacist because they have are trusted and have a good knowledge of medicine."

What's happening in your area? Have local chemists closed?

Pharmacists were ranked seventh in a 2013 Reader's Digest poll of Australia's most trusted professions. This reputation will ensure independent pharmacies will always have a permanent stake in the Australian market, Sinclair says.

"It's challenging, but we are well up for that challenge," he says.

"Community pharmacy has faced challenges in the past and is very resilient.

"But there will be some degree of reinvention of businesses."

Managing director of Medici Capital, Frank Sirianni, agrees. He says small players need to reassess their business structure if they want to take on the big boys.

"There is still a place for independents, but only in specific locations and they'll need to make a market niche and build on it," he says.

Sirianni, a management and financial consultant who specialises in the pharmacy industry, says it's incredibly hard for independent pharmacies to compete with low-cost pharmacy chains.

He says discount or big-box operators have a strong advantage over smaller, traditional pharmacies because they pay lower overheads and labour costs.

"They generally locate themselves in redundant retail spaces such as ex-hardware stores, video stores or small supermarkets so they can have low overheads," Sirianni says.

"Rent is the second-most expensive cost for pharmacy and labour is the highest.

"The big-box discounters keep labour costs low because they use a checkout model rather than having staff on the shop-floor."

Discount pharmacies have been credited with starting pharmacy price-wars and ultimately ensuring consumers pay less. Sirianni labels them "category killers", likening them to Bunnings in the hardware industry.

"It basically means that they have literally rebuilt the whole market and are what Bunnings was to hardware," he says.

Some pharmacists have found another way to beat the competition. By banding together and ordering stock into a central warehouse that is then distributed to individual stores, these pharmacists have managed to snare better wholesale prices.

However, IBISWorld predicts the rollout of discount pharmacies will continue in the next five years at the expense of independent pharmacies and those associated with traditional banner groups such as Amcal, Guardian, Soul Pattinson, Chemmart, Soul Pattinson and Priceline.

The growth of warehouse-style pharmacies will account for many of the 195 new pharmacies expected to open and most of the 1.3 per cent rise in employment for the industry.

Chemist Warehouse media officer Rutene Wharekawa declined to comment.

82 comments so far

My mother has been going to the same local chemist for 30 years (different pharmacists in that time, but the same business). Just recently the pharmacist picked up a serious interaction with a new prescription given to her by her doctor, that would have made her very ill had she taken it with one of her other medicines. She (the pharmacist) called the doctor, fixed the problem....sat down and talked to mum about all her medicines - couldn't have been more amazing. Whenever mum goes in there she gets lots of help. It is such a shame that these businesses are struggling. People like mum's pharmacist keep people out of hospital, and are always there to answer questions. What would be do with out them? Have to wait three weeks to see the GP for minor things?

Commenter

Ange

Location

Newcastle

Date and time

March 19, 2014, 7:25AM

yes but thats because your Mums Doctor didnt do his or her job properly.

Commenter

XXX

Date and time

March 19, 2014, 11:21AM

Sounds like a lovely story to aid in the plight of the small retail pharmacist.

Commenter

L

Location

Melbourne

Date and time

March 19, 2014, 12:01PM

@ XXX - not necessarily. A good, long-standing relationship with your pharmacist often means that they're already aware of what meds you're on as they likely have your prescription on file and know your history.

Unfortunately, not all pharmacists ask what meds you're currently taking although they should do.

Commenter

I'm With The Band

Location

Backstage

Date and time

March 19, 2014, 12:29PM

Yes obviously that issue got by the doctor. But if the doctor was supplying the meds, with no check by another party with expert knowledge or medications, what would have happened? Not knocking doctors, but they dont have the time or perhaps the knowledge of all the drug interactions.

I read somewhere that 65% of hospitalisations (or something equally as high) are due to issues with medications. That is an awfully high number. It's not chemists who prescribe. Just saying that one health professional cant do or know everything.

Commenter

Kim

Date and time

March 19, 2014, 12:49PM

While I can agree to some point with the "Your doctor didn't do the job properly" sentiment, please also remember that many people go to multiple specialists and a GP. There is always a chance that two seemingly unrelated medications will cause a conflict between one of these many parties. However if you frequent a single pharmacy they are in the best position to notice this. To me that alone is a good reason to pay for the service

Commenter

James

Location

Perth

Date and time

March 19, 2014, 5:11PM

Our local chemist does medication reviews. My doctor referred her to me and she came to my house. She sat with me for one hour and talked about what I take. With various serious health conditions my medications change regularly. Doctors have never taken the time (due to lack of time?) to talk to me about what I take. This lady was wonderful. She then wrote a letter to the doctor and as a result my doctor made some changes which I feel have made me better. My doctor even stopped some tablets and if I can take less medications then all the better! Will we get this personalised service from the discounters? Unlikely. The people at our chemist are great.

Commenter

Regg

Location

Australia

Date and time

March 19, 2014, 7:35AM

Similar experience with a home review for my dad. Helped immensly and the chemsit identified quite a few issues with the prescribed medicines, as well as helped dad understand things better by answering all his questions.

Commenter

Kim

Date and time

March 19, 2014, 12:50PM

I will preempt the comments on here about how pharmacies have been a protected industry for too long, and pharmacy owners have grown fat of the restrictions on ownership and medication supply. Spare a thought for us employee pharmacists who actually care about our patients and strive to help them with their medications and health. Employee pharmacists are well trained, and generally very interested in how you are. We have to accrue continuing education points each year to remain registered. We are up to date in our knowledge and actively seek out information to help our patients. Award wages are terrible (around $26/hr) and do not really reward our care or efforts. Yet the more pharmacies that close, the less of us there will be. We are an underutilised resource, yet we will soon no longer be available to the public. In a time of burgeoning health care costs, can society afford to lose us?